5 Tips for Understanding Your Credit Score

September 28, 2015

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Whether you want to get a credit card, a new car, or even home loans in Toronto, your credit score plays a vital role. The majority of lenders use your credit score as a measure of your trustworthiness and your ability to repay debts. Understanding your credit score is important for planning your present and your future. Here are five tips for doing just that.

#1 – You Have an Assigned Credit Score

This might seem obvious enough, but the truth is that many people do not even realize they have a credit score. They know that credit bureaus chronicle their loans and repayment histories, but they have no idea that a simple number reflects their creditworthiness in the eyes of lenders. Two agencies in Canada, Equifax and TransUnion, use a scale between 300 and 900. The higher your number, the better your credit.

#2 – Lenders Can See More than a Score

When lenders look at your credit report, they can see more than just your score. They can see things like bankruptcies and court judgements, debts you have not paid, and even information about your banking history such as nonsufficient funds. All of this can give them some insight into the reasons for your credit score, and they can determine their risk in lending to you by using this information. When you apply for bad credit mortgages in Toronto, your credit score is still a factor but the other information on your report is important, too.

#3 – 600 Is Good and 750 Is Excellent

Although some lenders differ on what they consider "good credit", a score of 600 seems to be the average. You typically need a score of 600 to obtain automobile loans, credit cards, and home loans in Toronto. If your score is 750 or more, you have more options available to you at much lower interest rates. If your score falls below 600, you can still obtain poor credit loans in Toronto, but you should expect higher-than-average interest rates.

#4 – Everything Affects Your Credit Score

Anything and everything that has to do with the way you utilize money can affect your credit score. This includes:

The types of credit you have

Bankruptcy and debts in collection

Recent credit inquiries

Any outstanding debts you already have

Your history of timely (or late) payments

The balance on your credit cards

#5 – Your Credit Score Does Not Define You

If you have a credit score below 600, many lenders will not give you a chance. After numerous turndowns for home loans, you might feel as if you are stuck. Fortunately, many lenders out there will look beyond your credit score. They will consider your employment, your salary, your current situation, and your ability to repay a loan. Do not let your credit score stop you from getting the home of your dreams. A bad credit mortgage is easier than you might think.

Part of improving your credit so that you can enjoy loans with lower interest rates involves understanding your credit score. Once you know your score and the factors that affect it, you can start making changes to make things better for the future. In the meantime, you can apply for bad credit mortgages in Toronto to get the home you want.